Thursday, February 2, 2012

Following up his original proposals during the State of the Union address, President Obama outlined the specifics of his plans to help the housing market recovery on Wednesday. The president outlined a seven-part effort that would address the housing crisis from multiple angles. The entirety of the president’s plan would be funded through an additional fee on large banks, a measure sure to face congressional opposition.

The plan was outlined as follows:

1. New and improved processes to help more borrowers refinance their mortgages

The goal is to create a new refinancing program that will be run by the Federal Housing Finance Agency. The FHFA initiative focuses on providing more borrowers the opportunity to refinance their mortgages. The central tenets of the proposal include:

- Allowing borrowers who have not obtained their loans through GSEs like Fannie Mae or Freddie Mac to refinance if they are current on their payments (even if they’re underwater) and meet some additional criteria- Streamlining the refinancing process for all GSE borrowers up-to-date with their loans- Helping borrowers use the refinancing progress to build up their equity

For non-GSE borrowers to qualify for refinancing, they must meet a minimum credit score; their loan can’t be larger than the current FHA conforming loan limits in their area; and they must be refinancing on a single-family, owner-occupied home that is their primary residence.

For GSE borrowers, the president’s plan would make the following improvements:

- Eliminate appraisal costs for all borrowers- Increase competition amongst lenders to help lower prices for borrowers- Extend the streamlined refinancing processes to all GSE borrowers

Under the president’s plan, borrowers with equity problems will also be able to rebuild some of that equity through refinancing. They will have the option of either making lower monthly payments on their loans instead of putting the savings in equity. As an incentive for the latter option, GSEs and the FHA may be required to cover the closing costs for borrowers.

2. The Homeowner Bill of Rights

The Homeowner Bill of Rights, the second part of Obama’s plan, would provide the following protections:

- Simpler mortgage forms, currently being designed by the Consumer Financial Protection Bureau- Required full disclosure of all fees and penalties by lenders before they go into effect- Minimizing conflicts of interest between borrowers and lenders- Mechanisms to help at-risk homeowners- Defenses against inappropriate foreclosure

This measure would essentially repurpose vacant and foreclosed homes into rental housing with the goal of reducing the inventory; this, in turn, should help stabilize housing prices.

4. 12 months of forbearance for unemployed borrowers

Extending the period of time when foreclosed borrowers are allowed to stay in their homes would give them more time to find much-needed employment. The extension will apply to both the FHA (up from four months) and HAMP (up from three months).

The newly formed Residential Mortgage-Backed Securities Working Group will investigate financial institutions suspected of misconduct related to the pooling and sale of mortgage-backed securities. Officials from the Department of Justice, Department of Housing and Urban Development, Securities and Exchange Commission and state Attorney Generals will all be part of the effort.

Deemed “Project Rebuild,” this effort would provide work for out-of-work construction employees nationwide, restoring hundreds of thousands of vacant and foreclosed homes and businesses. The president proposed setting aside $15 billion for the effort.

7. Expand eligibility requirements for HAMP

In addition to extending the life of the HAMP program to the end of 2013, Obama hopes to adjust the eligibility requirements to allow more people to take advantage. These changes would include:

- Helping those with secondary debt meet the requirements- Adding properties currently occupied by a tenant or which the borrower intends to rent- Provide additional incentives to lenders to modify loans to help borrowers rebuild equity